DIFFERENTIAL MERGER EFFECTS: The Case of the Personal Computer Industry

This paper examines how information on the purchasing patterns of differentcustomer segments can be used to more accurately evaluate the economicimpact of mergers. Using a detailed dataset for the leading manufacturers in theUS during the late nineties, I evaluate the welfare effects of the biggest ($25billion) merger in the history of the PC industry between Hewlett-Packard andCompaq. I follow a two-step empirical strategy. In the first step, I estimate ademand system employing a random coefficients discrete choice model. In thesecond step, I simulate the postmerger oligopolistic equilibrium and compute thewelfare effects. I extend previous research by analysing the merger effects notonly for the whole market but also for three customer segments (home, smallbusiness and large business). Results from the demand estimation and mergeranalysis reveal that: (i) the random coefficients model provides a more realisticmarket picture than simpler models, (ii) despite being the world's second andthird largest PC manufacturers, the merged HP-Compaq entity would not raisepostmerger prices significantly, (iii) there is considerable heterogeneity inpreferences across segments that persists over time, and (iv) the merger effectsdiffer considerably across segments.Computer industry, discrete choice models, merger analysis, productdifferentiation, random coefficients.

Seesaw in the Air: Interconnection Regulation and the Structure of Mobile Tariffs

Interconnection rates are a key variable in telecommunications markets. Every call that is placed must be terminated by the network of the receiving party, thus the termination end has the characteristic of an economic bottleneck and is subject to regulation in many countries. This paper examines the impact of regulatory intervention to cut termination rates of calls to mobile phones. We argue that regulatory cuts should have a differential impact according to the type of tariff the mobile customer subscribes to. While all mobile customers may pay higher prices because of a "waterbed" effect, termination rates also affect competition among mobile operators. We show that the waterbed effect is diluted, but not eliminated, for customers with pre-paid cards, where regulation also acts as impediment to "raise-each-other's-cost" collusive strategies that mobile networks can adopt. The waterbed effect is instead strongest for consumers with monthly (post-paid) subscription contracts.Interconnection, network competition, regulation, mobile phones

Interim Rank, Risk Taking and Performance in Dynamic Tournaments

Little is known about the effects of revealing information on relative performance during a dynamic tournament. We empirically study the impact of interim rank on risk taking and performance using data on professionals competing in tournaments for large rewards. As our data allows us to observe both the intended action and the performance of each participant, we can thus measure risk taking and performance separately. We present two key findings. First, risk taking exhibits an inverted-U relationship with interim rank. Revealing information on relative performance induces individuals trailing just behind the interim leaders to take greater risks. Second, competitors systematically underperform when ranked closer to the top, despite higher incentives to perform well. Disclosing information on relative ranking hinders interim leaders.Dynamic tournaments; interim ranking; relative performance; risk taking

Risk Taking and Performance in Multistage Tournaments: Evidence from Weightlifting Competitions

We analyze the impact of interim ranking on the risk taking and performance behaviour of professional athletes participating in international weightlifting competitions. Weightlifting competitions are multistage tournaments with the unique characteristic that the athletes must announce in advance the amount they intend to lift at each stage, thus allowing quantification of the riskiness of their choices. We present two key findings. First, risk taking exhibits an inverted-U relationship with rank: risk taking increases up to rank six, but athletes then revert to safer strategies towards the bottom of the ranking. Second, athletes systematically underperform when ranked closer to the top, despite higher incentives to perform well. An athlete is more than 30 percent less likely to lift the announced weight when ranked first than tenth. Athletes also underperform in relatively more prestigious competitions, when the competition is more intense, and when the potential gain from a successful lift is higher. Taken together, these findings suggest that athletes may systematically "choke under pressure".Choking under pressure, incentives, performance, risk taking, tournaments

Testing the "Waterbed" Effect in Mobile Telephony

This paper examines the impact of regulatory intervention to cut termination rates of calls from fixed lines to mobile phones. Under quite general conditions of competition, theory suggests that lower termination charges will result in higher prices for mobile subscribers, a phenomenon known as the "waterbed" effect. The waterbed effect has long been hypothesized as a feature of many two-sided markets and especially the mobile network industry. Using a uniquely constructed panel of mobile operators' prices and profit margins across more than twenty countries over six years, we document empirically the existence and magnitude of this effect. Our results suggest that the waterbed effect is strong, but not full. We also provide evidence that both competition and market saturation, but most importantly their interaction, affect the overall impact of the waterbed effect on prices.telecommunications, regulation, Waterbed effect, two-sided markets

Weightlifting competitions: lessons for performance management

Christos Genakos and Mario Pagliero look at professional weightlifters to assess the effects of reward systems based on relative performance.

Modern Management: Good for the Environment or Just Hot Air?

We use an innovative methodology to measure management practices in over 300 manufacturing firms in the UK. We then match this management data to production and energy usage information for establishments owned by these firms. We find that establishments in better managed firms are significantly less energy intensive. They use less energy per unit of output, and also in relation to other factor inputs. This is quantitatively substantial: going from the 25th to the 75th percentile of management practices is associated with a 17.4% reduction in energy intensity. This negative relationship is robust to a variety of controls for industry, location, technology and other factor inputs. Better managed firms are also significantly more productive. One interpretation of these results is that well managed firms are adopting modern lean manufacturing practices, which allows them to increase productivity by using energy more efficiently. This suggests that improving the management practices of manufacturing firms may help to reduce greenhouse gas emissions.management, energy efficiency, energy intensity and productivity

The European commission versus Microsoft: competition policy in high-tech industries.

The antitrust cases against Microsoft in the United States and Europe have been the most high profile implementation of competition law in the last 20 years. Christos Genakos, Kai Uwe Kühn and John Van Reenen look at the key economic issues, notably what they imply for the conduct of competition policy in high-tech industries dominated by rapid innovation.